Investment market updates

Stock markets performing well

Share markets around the world delivered good returns for the year ending September 2025, supported by the downward trajectory of interest rates, and trade deals between the US and most major trading partners.

In April, President Trump announced a swathe of trade tariffs billed as ‘Liberation Day’. Markets reacted negatively, with drops in US shares and government bonds. However, the US administration was quick to open discussions with most of its major trade partners. There was a series of pauses, exemptions for certain goods, and new trade deals, with most major share markets recovering strongly since then.

The US economy has been performing well. GDP’s increased at an annual rate of 3.8% for the quarter ending June, aided by strong consumer spending and massive investment in data centres and information processing technology. Tech giants such as Microsoft, Google and Nvidia have invested hundreds of billions of dollars in building and upgrading data centres, in response to demand for artificial intelligence capability. That’s expected to slow, however. Trump’s immigration crackdown, as well as the continued threat of trade disputes, means economists are expecting lower annualised growth for the rest of 2025 and beyond. Ernst & Young are forecasting GDP growth of 1.4% in 2026.

US shares returned 17% for the 12 months ending September 2025, with global share markets in aggregate providing a similar return.

China and India – economic superpowers?

In the rear-view mirror of the US is China, the world’s second largest economy. Chinese shares have been one of the best performing markets over the last year, up more than 30% to end September 2025.

Chinese authorities target economic growth of 5% a year. They’ve implemented a mix of pro-growth policies with increased public investment in infrastructure projects such as transport, green energy and digital networks. They’ve also lowered interest rates and reduced reserve requirements for banks to encourage lending.

The scale of development in China is impressive. They’re global leaders in renewable energy infrastructure development, with twice as much solar and wind power under construction than the rest of the world combined. They’ve built four new airports since 2023 – while the UK continues to discuss the merits of a third runway at Gatwick. In another UK comparison, China have added more navy displacement in the last four years than the entire existing Royal Navy.

The US economy remains larger by some distance - $30 trillion annual GDP compared to $19 trillion. But on a different measure (purchasing power parity) which adjusts for the cost of living, the Chinese economy has actually been larger since 2016.

China, however, isn’t the fastest growing major economy. That accolade belongs to India, with growth of 6.5% in 2024, and likely to beat that this year. India’s economy is expanding rapidly due to a youthful population which fuels a vast labour force with strong domestic demand. This attracts significant foreign capital, which the government is supporting via economic liberalisation. Their economy (as measured by GDP) is expected to overtake Germany’s in size by the end of the decade, behind only the US and China – albeit still only a quarter of a size of China’s. So maybe not an economic superpower just yet, but one in the making.

However, economic performance does not necessarily translate to short-term market performance. With some weakening of the rupee (making imports more expensive), and with valuations quite high (one of the best performing equity markets over the last five years), Indian equities actually fell over the last 12-months by just shy of 6%.

Stuttering growth for the UK, but good returns for shares

The high levels of growth achieved by China and India puts most western economies’ growth rates in the shade. This is understandable and must be considered in the context of living standards being much higher for most people in the US, Europe and UK.

The UK economy is expected to grow at just above 1% for 2025. Low growth, and lack of ability to reign in public spending, places a lot of pressure on Rachel Reeves. The risk (certainly to bond markets) is that the chancellor seeks to weaken her own fiscal rules on borrowing – a short-term fix likely to cost more in the long run. All eyes on the November budget!

The Bank of England made four 0.25% cuts to interest rates over the last 12 months, bringing the base rate down from 5% to 4%. However, inflation remains above target (3.8% as at end August), meaning future cuts will likely be lower and less frequent. The UK is forecast to have the highest inflation out of the G7 countries this year – high(ish) inflation and low / no growth, is not where any economy wants to be.

Despite challenging economic conditions, the UK stock market, which is home to many multinational companies earning large parts of their revenue overseas, rose 16% (as measured by the FTSE All Share Index) in the 12 months, when factoring in reinvestment of dividends. The UK’s aerospace and defence sector led the way, with aggregate returns of 94%, as NATO members pledged to materially raise spending. Mining stocks were also a standout performer (+127%) with gold hitting new highs and increasing demand for rare earth metals. On the flipside, the beverage sector fell 23%, not helped by declining consumer spending and increased US tariffs on products such as Scotch whisky. The more UK centric, FTSE 250 Index, often a better barometer for the UK economy itself, was up a more modest 8%.

Bond markets positive – except those with long maturities

Bond markets has been a mixed bag, with good returns from high yield bonds, ok returns for short-medium term bonds and losses for long-term bonds.

Global investment grade bonds (corporate and government bonds across all maturities) returned 2.9% for the 12-month period. UK Government bonds (Gilts) however fell 1.3% in aggregate, dragged lower by long-duration gilts, where those with maturities over 15 years were down 9%.

High-yield corporate bonds in GBP, which have credit ratings lower than BBB, were the standout performers with returns of 9.3%. High-yield bonds, while attractive from a purely return perspective, tend to react to events in a similar way to equity markets. This makes them less of a diversifying asset when alongside equities.

Virgin Money investment funds

All Virgin Money funds had positive returns over the year (to end Sept) except the specialist Climate Change fund, which fell 0.8%.

Our three multi-asset growth funds (Cautious to Adventurous, also known as Growth Funds 1, 2 and 3) delivered good returns, ranging from 6.7% to 12.3%. Returns were in order of risk profile, with shares outperforming bonds during a period where taking on risk was rewarded.

Our lower-risk multi-asset fund, the Defensive fund, had a decent 12 months too, returning just short of 5%. Its focus on lower risk, shorter maturity bonds meant it avoided the losses experienced by bonds with longer maturities, while its small exposure to shares also added valued. The Bond Fund however was up a more modest 1.7%, with its corporate bond exposure (roughly half of the fund) offsetting small losses from its government bond exposure, which is mostly Gilts.

The UK Index Tracker fund had the highest return for the period at 16.0%. It benefited from strong performance from aerospace and defence companies and the mining sector (gold hit a record high in April). Both sectors returned more than 90% for the year. Banks also performed strongly (+56%) with interest rates remaining relatively high, enabling strong earnings. In contrast, oil and gas stocks dropped 9% as tariffs affected the outlook for global trade.

The Global Share fund also had a good year, up 15.1%, with all major equity markets delivering double digit returns. The fund’s largest exposure is to the US, which makes up approximately 58% of the fund – which while more than half of the fund, actually represents a large underweight (10%) to its benchmark. In balance this didn’t influence returns that much over the period, with both the US and the wider world up similar amounts. The fund increased its exposure to Japan towards the end of the period, up for 1% to 6%, following an increase in the expected return for Japanese shares by our Investment Adviser (Aberdeen).

The Climate Change fund has continued to struggle returns-wise and was down just shy of 1% over the year. Ordinarily a 1% fall in any 12-month period for an equity fund would be nothing to get excited about, but when considered against the backdrop of rising markets, this was a disappointing result. The fund has a concentrated portfolio of 30-45 companies developing climate change solutions and showing good environmental practices. Some of these companies fell in value due to concerns around funding for green energy projects, and the fund didn’t invest in some sectors which outperformed, such as defence and banks. Our focus is on improving investment returns while also better reporting with regard the environmental benefits of the fund.

You can see the return for each of our funds over the last five years on each fund’s web page.